Why Benefit Corporation Legislation Can Benefit Less Developed Countries

Written by on December 3, 2012 in CSR, Entrepreneurship, poverty, World - 1 Comment

      The B Corp movement has gone global with plans to have over 100 B Corps outside of the U.S. in at least 20 countries by the end of 2013.  Yet while the expansion of the B Corp certification around the world is big news, the underlying next step is to have benefit corporations be a legal option in foreign countries just as it has in places like California, New York, and most recently Pennsylvania.  While the B Corp movement was initiated in the United States and has no doubt benefited from the business infrastructure and opportunities that the U.S.’s wealth offers, the movement nonetheless poses an opportunity for the less developed countries where poverty is more pronounced and economic opportunities are at a minimum.  The following is an examination of the effects that benefit corporation legislation can have on the poorest countries in the world.

The private sector can be a great instrument of change and economic development in the poorest countries, especially in conjunction with government and international aid programs.  Yet while traditional for-profit businesses can certainly help in this fight, their goals are fundamentally at odds with their partners.  Businesses generally aim to make as much money as they can, while aid programs aim to improve the country.  Sometimes these two goals are aligned, but not always.  In particular, traditional businesses might create gains for an already privileged segment of the population while leaving others, often the most vulnerable and impoverished, without much benefit at all.  Social enterprises and benefit corporations by incorporating public benefit into their own mission are on the contrary designed to promote economic development and create opportunities more equitably.  They expressly share the goals of governments and international organizations (as long as we assume that these groups themselves have public benefit as their goal) and are not exclusively seeking their own benefit, making them ideal partners for achieving economic development and justice.

Government support for social enterprises in the poorest countries through benefit corporation legislation can help create successful social enterprises that will improve the well-being of the least well off, which will in turn lead to greater stability and growth for the country overall.  Additionally, a well-defined infrastructure for social enterprises and benefit corporations would attract the “right” kind of investors to countries that are generally starved for capital.  Instead of attracting investments that quickly flow in and out of a country based on short-term profit potential (leading to financial instability and crises) benefit corporations can attract impact investors who are patient and interested in the more long-term development of business opportunities and positive social/environmental results.  Benefit corporation legislation would not only increase the visibility of social enterprises within a country, it would also signal governmental support to investors, thereby reducing potential political risk.

In places like the United States, the importance of social enterprise is gradually being recognized but social enterprises are faced with the additional challenge of having to compete in markets that are already dominated by traditional for-profit business models.  Countries with a less entrenched market system avoid this problem by letting benefit corporations “in at the ground floor.”  Where markets need to be created rather than entered, mission-oriented benefit corporations would be able to develop their own efficient operations without feeling the initial pressures of competing with purely for-profit businesses.  The success rate of benefit corporations compared to traditional businesses might therefore be even higher in less developed countries.

This extra advantage for benefit corporations in poorer countries can be explained by the concept of leapfrogging. Take, for instance, the development of telecommunications around the world.  In richer countries mobile technology had to replace landline phones, while in the poorest countries there were almost no landline phones at all.  The poorer countries got to leapfrog over the hassles and costs of landline phones straight to mobile phones.  Poorer countries are able to skip over outdated technologies and get right to more efficient products; they can skip the mistakes and adapt the successes.

The same is true not just for products but ideas as well.  A country can embrace the idea of socially responsible business without having to deal with the growing pains of inequality and tension that may go along with profit-minded business development.  If a country is capable of fostering a flourishing sector of mission oriented businesses from the start, then that country could avoid a great many challenges as it drives along the road to prosperity.  Less developed countries can look to places like the United States, see that they are adapting more socially responsible business models, and then implement those models more easily by skipping several steps the United States had to take along the way.

Naturally, benefit corporation legislation faces unique challenges in less developed countries.  In countries where there is a lack of effective regulation and governance, benefit corporation legislation could be meaningless or perhaps be detrimental by providing a new means for corruption and rent-seeking.  Just as a lack of effective regulation by the government is problematic, a lack of appropriate reporting and accountability guidelines would also pose a challenge to benefit corporation legislation.  Where there is a lack of this type of information infrastructure, it will be tough to maintain and evaluate the social good that these businesses are supposed to achieve.

It could also be argued that a mission oriented business sector would lead to slower economic growth, just as the financial returns on mission oriented businesses are traditionally less than their for-profit competitors.  But while this development might be slower, it would be more cautious and stable.  Nonetheless as the least developed countries seek new opportunities for growth, one of them just might be able to differentiate itself by embracing the benefit corporation movement, and could in turn find a path to stable prosperity.  That seems like an opportunity that should not be missed.

Photo Credit: www.green-blog.org/2010/03/09/solar-power-will-take-over-soon/

Dan Osusky

Dan Osusky is an Associate at B Revolution Consulting, a benefit corporation consulting firm that advises social entrepreneurs in business plan development and strategy, and COO of B Revolution’s ezBcorp service, an online services platform that provides quick and convenient business solutions for social entrepreneurs. He has a graduate degree in Philosophy and believes that as a complement to the passion of social entrepreneurs it is necessary to develop an intellectual framework that can provide insight into the societal, economic, and moral implications of social enterprise.

More Posts - Website - Twitter - LinkedIn